What questions should an institutional investor ask when selecting a CTA for alternative investing?
Institutional investors should have a proper due diligence process, including both investment due diligence and operational due diligence to select a CTA. During the investment due diligence, they should be able to identify the strategy’s unique edge in the market, the repeatability of the sound investment process, a disciplined robust risk management process and an ongoing research process which avoids curve fitting. The operational due diligence should review the soundness of the management firm, the reputation of the principals, the separation of duties between the investment, operational and risk management processes.